The role of renewable energy and total factor productivity in reducing carbon emissions: A case of top-ranked nations in the renewable energy country attractiveness index

On the one hand, economies, particularly developing ones, need to grow. On the other hand, climate change is the most pressing issue globally, and nations should take the necessary measures. Such a complex task requires new theoretical and empirical models to capture this complexity and provide new insights. Our study uses a newly developed theoretical framework that involves renewable energy consumption (REC) and total factor productivity (TFP) alongside traditional factors of CO2 emissions. It provides policymakers with border information compared to traditional models, such as the Environmental Kuznets Curve (EKC), being limited to income and population. Advanced panel time series methods are also employed, addressing panel data issues while producing not only pooled but also country-specific results. 20 Renewable Energy Country Attractiveness Index (RECAI) nations are considered in this study. The results show that REC, TFP, and exports reduce CO2 emissions with elasticities of 0.3, 0.4, and 0.3, respectively. Oppositely, income and imports increase emissions with elasticities of 0.8 and 0.3. Additionally, we show that RECAI countries are commonly affected by global and regional factors. Moreover, we find that shocks can create permanent changes in the levels of the factors but only temporary changes in their growth rates. The main policy implication of the findings is that authorities should implement measures boosting TFP and REC. These factors are driven mainly by technological progress, innovation, and efficiency gains. Thus, they can simultaneously reduce emissions while promoting long-run green economic growth, which addresses the complexity mentioned above to some extent. •The CO2 effects of renewable energy consumption (REC) and total factor productivity (TFP) are assessed.•20 out of the top 40 Renewable Energy Country Attractiveness Index (RECAI) countries are considered.•A newly developed theoretical framework of CO2 and advanced panel methods are used.•It is found that TFP, REC, and exports reduce CO2, whereas income and imports increase.•Main policy insight is that TFP and REC should be boosted as they reduce CO2 while promoting growth.